Home Depot Group 2

HOME DEPOTGROUP 2

◘ Dillon Shepley◘ Jayson Brayall◘ Jeff Austin◘ Jeff Taylor◘ Benjamin Howard

I. CURRENT SITUATIONDILLON SHEPLEY

A. Current Performance The company continued to expand and topped many company records in 2005 including earnings per share, operating margin and net earnings records. They retained the spot as the world’s largest home improvement retailer and the second largest retailer in the United States behind Wal-Mart. • Opened more than 900 stores from 2000-2005• Sales increased from $45.7 billion in 2000 to $81.5 billion in

2005• Earnings per share more than doubled in the same time• Employed 345,000 associates• Average sales per customer ticket reached 57.98, an all-time

high• 1,832 Home Depot stores • Went from 0 to number 3 in the core appliance market share


B. Strategic Posture

1. Mission:

• The Board of Directors (the "Board") of The Home Depot, Inc. (the "Company") is committed to maximizing long term shareholder value while supporting management in the business and operations of the Company, observing the highest ethical standards and adhering to the laws of the jurisdictions within which the Company operates.

• Strong Business Code of Conduct and Ethics



2. Objectives

• Enhancing the Core, extending the business and expanding the market. • Maintain and grow its leadership position in the home improvement retail worldwide.• Become the nation’s largest diversified wholesale distributor• Become number one in services • Become the largest home improvement retailer in both Canada and Mexico.• Increase direct-to-consumer channels• Compounded annual sales growth of 9%-12%

• Compounded earnings per share growth of 10%-14%• Open 400-500 new stores • Increase operation margin• Have a cumulative operating cash flow of $50 billion• Cumulative capital expenditures of $17-20 billion• Grow Home Depot Supply sales• Increase efficiency• Increase number of customers applying for credit



3. Strategies

• Introduced self checkout, Back End Automation and Re-engineering and centralized automated replenishment. • Acquired 21 companies • Remain prepared for weather phenomenon such as hurricane Katrina.•Served both the Do-It-Yourself (DIY) and Do-It-For-Me (DIFM) customer. • Better serve the professional customer. • Modernize the stores while updating their product lines. • Expand into multiple channels.

• Expand into new markets. • Use technology to increase efficiency examples in clued computerized point of sale system, electronic bar code scanning system, and a UNIX server.• Become Sustainable. • Differentiate itself from its competitors through customer service.• Employ only highly qualified and helpful employees. • Demonstrate methods and techniques of performing a job safely and efficiently to the customer. • Offered credit programs and reduced charge card approval process time.



4. PoliciesMain policies

• Improve everything we touch • Superb Service• Be a good corporate citizen• Behave Ethically• Act with integrity

Prior to Bob Nardelli in December of 2005 • Decentralized management and decision making.• Entrepreneurial innovation and risk taking.• High levels of employee commitment and enthusiasm.• Bond with customers and the communities• Orange-blooded culture which emphasized individuality, informality, nonconformity, growth and pride.

After Bob Nadelli • Centralized management• Organize the company• Emphasis on military efficiency• Hire veterans• Disciplined manager corps

II. STRATEGIC MANAGERSJAYSON BRAYALL

A. Board of Directors

• Robert Nardelli• John L. Clendenin• Gregory D. Brenneman• Claudio X. Gonzalez• David H. Batchelder• Kenneth G. Langone

• Angelo R. Mozilo• Thomas J. Ridge• Laban P. Jackson, Jr.• Lawrence R. Johnston• Helen P. Johnson – Leipold• Bonnie G. Hill• Milledge A. Hart


A. Board of Directors (continued)

• Majority of directors on the board• Nardelli taking advantage of Home

Depot’s publically traded stock. • During the 2006 AN meeting, the

Board was strongly accused of lacking independence and indeed did not participate in person.


B. Top Management

1. The case and the 2006 Annual Report list the following as the managers of Home Depot. The majority had greater than three years with the corporation.

• Management experience came from diverse external backgrounds• The internal experience base has been selected from medium to long term managers • Top management’s has established a strategic approach to corporate management.• Nardelli was empowered to bring on like minded upper level managers to match his vision.• Home Depot’s future as the industry leader was openly questioned • No information revealed the amount of executive stock held, with the exception of Nardelli. • During FY 2006, six uncertified, class actions were filed• The company has longed been known for its good corporate citizenship.


B. Top Management

2. The annual report identifies the following as management for Home Depot. It also lists a separate listing of what it calls the Home Depot Leaders.

• Roger W. Adams• Francis S. Blake• Timothy M. Crow• Joseph J. DeAngelo• Robert P. DeRodes• Marvin R. Ellison• Craig A. Menear

• Bruce A. Merino• Paul Raines• Ricardo Salvidar• James C. Snyder, Jr.• Carol B. Tom’e• Annette M. Verschuren


B. Top Management

3. The following is an additional listing taken from the Annual Report but not clarified in the text

• Ms. Diane S. Dayhoff• Mr. Brad Shaw

No historical or biographical information was published

EXHIBIT #5JAYSON BRAYALL

Exhibit #5A

FY Ends each January(amounts in $M) 2007 2006 2005CASH FLOWS FROM OPERATING ACTIVITIES:

Net Earnings 5,761 5,838 5,001Reconciliation of Net Earnings to Net Cash Provided by Op Activities:

Depreciation and Amortization 1,886 1,579 1,319Impairment Related to Disposition of EXPO Real Estate 0 78 0Stock-Based Compensation Expense 297 175 125Changes in Assets and Liabilities, net of the effects of acquisitions:

Decrease (Increase) in Receivables, net 96 (358) (266)

Increase in Merchandise Inventories (563) (971) (849)

(Increase) Decrease in Other Current Assets (225) 16 29Increase in Accounts Payable and Accrued Liabilities 531 148 645

(Decrease) Increase in Deferred Revenue (123) 209 263

(Decrease) Increase in Income Taxes Payable (172) 175 2

Increase (Decrease) in Deferred Income Taxes 46 (609) 319(Decrease) Increase in Other Long-Term Liabilities (51) 151 119

Net Cash Provided by Operating Activities 7,661 6,620 6,632

III. EXTERNAL ENVIRONMENTJEFF AUSTIN

A. Natural Physical Environment: Sustainability Issues

• The elimination of unnecessary packaging, along with recycling, has helped Home Depot in their bid for sustainability. They have also worked with training employees and customers to educate them on the importance of conservation and resource efficiency as well minimizing environmental health issues and safety risk associated with them. They are definitely trying to be a leader on the forefront when dealing with sustainability.

• The reaction to Hurricane Katrina’s devastation shows how the natural environment could affect Home Depot business and it’s relation with the local community in particular. This is just one example from the text. Imagine if a tornado ripped through a town or a volcanic eruption disturbed Seattle area as it did in 1980. Home Depot would be affected by any of these natural disasters.


B. Societal Environment

a) Economic

• Economic models established by company helps determine direction of industry (O)• Near record level in home ownership increases demand for DIY projects (O)• Expansion into Canada & Mexico offers new stakeholders/consumers (O)• Sales changed seasonally, winter being a low-growth quarter (T)



b) Technological

• Installation of self checkout kiosk decrease time in store and minimize person to person contact (T)• Internet became another channel for consumers to purchase products (O)• Addition of point-of-sale system, electronic bar code, and a UNIX server assisted in efficient tracking a buyer trends (O)• A second technology center was opened in Mexico (O)• Overall upgrades to financial services in Mexico, call centers, and websites help advance sales and revenue tracking (T)

c) Political/Legal

• CEO are compensated up to 50% bonuses annually (T)• Managerial level employees receive at a minimum 25% incentive pay (T)• Floor workers and lower level employees receive no bonuses (T)



d) Socio Cultural

• Employees have opportunity for a cradle to the grave job (O)• Train employees based on a bottom-to-top sequence (O)• Informality among employees prior to Nardelli (T)• Huge contributor during Hurricane Katrina relief (O)• CommUnity Grants cleaned up play ground for children (O)

Even though Home Depot has expanded outside the US borders, they still haven’t left North America. These factors have not been tested elsewhere.


C. Task Environment

• Threat of new entrants – Low• Bargaining powers of buyers – Medium• Threat of substitute products or service – Low• Bargaining power of suppliers – Medium• Rivalry among competing firms – High• Power of unions, government, special interest groups – Medium

EXHIBIT #1JEFF AUSTIN

D. Summary of External Factors

External Factors Weight RatingWeighted

ScoreComments

Opportunities

Record-level home sales 0.2 4 0.8

Addition of UNIX 0.05 2.8 0.14

Employee training 0.1 3.6 0.36

Katrina relief 0.15 3.2 0.48

Expansion across borders 0.1 2.5 0.25

Threats

Self-checkout kiosk 0.1 3 0.3

Employee compensation 0.15 4.5 0.675

Change in seasonal sales 0.05 2.8 0.14

Informality among employees` 0.1 2.5 0.25

Totals 1 3.395

IV. INTERNAL ENVIRONMENT: STRENGTHS AND WEAKNESSESJEFF TAYLOR

A. Corporate Structure

• Management consists of a 13 member leadership team. These 13 Executive Officers work together to successfully manage the company.• CEO Robert Nardelli is very involved in every managerial decision. He gives the final word on what percentage of full time and part time employees he wants and where he wants them.


B. Corporate Culture

• Home Depot emphasized an “orange-blooded culture” that emphasized individuality, informality, nonconformity, growth, and pride. This was promoted by to of the company founders, Bernard Marcus and Arthur Blank.• The senior executives recognize the amount of young people that work for the Home Depot and they want these employees to feel comfortable, relaxed, and secure in their positions.• When Bob Nardelli took over, he did away with the former concepts of this decentralized entrepreneurial venture. He brought a more rigid structure to his employees.• Staff strongly opposed the changes made by Nardelli and 98% of the top executives left the company.


C. Corporate Resources

1. Marketing

• Offer a wide array of high-quality goods at low prices, while offering help from knowledgeable and helpful employees.• They used sponsorships that were viewed by millions including: NASCAR, U.S. Olympics team, and ESPN College Gameday.• Offered service to three primary customer groups: DIY (Do IT Yourself) Customers, DIFM (Do It For Me) customers, and Professional Customers.



2. Finance

• In 2005 sales increased almost 100% from 2000 to reach $81.5 billion.• Since 2000 nearly $13 billion was returned to shareholders in the form of dividends and share repurchases.• Average ticket sale hit an all time high in 2005 reaching $57.98 per customer.• Common stock actually dropped by 30% since Nardelli took the company over.• Nardelli is amongst six other CEOs who Fortune magazine identified in an article entitled, “The Real CEO Pay Problem”. He had given himself pay and benefits exceeding $13 million in value annually.



3. Research and Development

• In 1990 Home Depot tested a new Store Productivity Improvement program designed to improve storage and merchandise replenishment on the floor.• They tested renovations that would enhance customer access, reduce customer shopping time, and streamline merchandise stocking and delivery.

4. Operations and Logistics

• Service objectives were focused around the Do It Yourself idea. Management wanted the customers to feel confident in themselves to do the job through the guidance they receive from the employees.• They offer power tool and truck rentals, Do It Yourself plans, Do It For Me plans, Commercial customer sales, and skillful and knowledgeable employees at the customers disposal.



5. Human Resources Management

• As of January, 2006, Home Depot employed 345,000 people. 68% of these employees are full time and the rest are part time.• There are no unions, as the employee relations with the company are very good.• Company goal is to maintain employee turnover at no more than 20%.

6. Information Technology

• Each store contains the typical point-of-sale system, bar code scanning system, and a UNIX server.• The charge card approval waiting time was recently reduced to less than 30 seconds to speed up customer check out time.• Home Depot continuously searches for updates to its information systems to accompany its growth and reduce its control costs.

EXHIBIT # 2JEFF TAYLOR

EXHIBIT 2

Internal Factors Weight Rating Weighted Score Comments

Strengths

Skilled, happy employees 0.15 4.00 0.60 Want to help

Involved senior management 0.10 3.00 0.30 Important

Product selection 0.20 4.50 0.90 Wide variety

Service options 0.15 3.50 0.53 DIY, DIFM

Good advertising 0.15 3.40 0.51 Widely viewed

Weaknesses

New CEO management method 0.10 3.50 0.35 Original employees unhappy

Employee Retention 0.05 2.00 0.10 High turnover rate

Overpaid CEO (public issue) 0.10 3.00 0.30 Public is unhappy with this

Total Scores 1.00 3.59

V. ANALYSIS OF STRATEGIC FACTORS BENJAMIN HOWARD

A. Situational Analysis (SWOT)

1. Strengths

• Rapid Deployment• Predictable and profitable growth Strongest balance sheet• Number 3 in the core appliance market share Secured 10% of the U.S. Market• Largest home improvement retailer Canada & Mexico• Served three primary customers Do-It-Yourself Do-It-For-Me Professional customers

• Store Productivity Improvement (SPI)• Concern for Environment• “Recession proof”• No single supplier• Management and employee relations• Brand Awareness


A. Situational Analysis (SWOT)

2. Weaknesses

• Carpet Installation• Didn’t inspire customer service• Negative comparable store sale figure• Product Recalls

3. Opportunities

• Introduce new products• Maintain and grow leadership position• Become the Nation’s largest diversified distributor• Become number one in services• Increasing direct-to-consumer channels• New operational Initiatives• Tremendous potential for future growth• International Expansion


A. Situational Awareness (SWOT)

4. Threats

• Reorganization Initiatives• Increase demand for power tools• Growth in online purchasing

B. Review of Current Mission and Objectives

Mission Statement

• To provide the best customer experience in home improvement retail, the best place to work for our associates and the best place to invest

Objective

• Cannibalize• Attend to customer

EXHIBIT #4 BENJAMIN HOWARD

Liquidity Ratio 2005 2006Current 1.3 1.18(Current Assets/Current Liabilities)

Quick 0.401 0.306(current Assets-inventory/current liabilities)

Leverage RatioDebt to Total Assets 6.00% (Total Debt/Total Assets)

Debt To Equity 1% 1.37%(Total Debt/Total Assets) Activity RatiosInventory Turnover-sales 8.08% 6.40%(Net Sales/Inventory)Average collection (days) 75.7 76.8

(Inventory/COGS divided by 365)Fixed Asset Turnover (Sales/Fixed Asset)Total Asset Turnover 1.87% 1.83%(sales/total asset) Profitability RatiosGross Profit Margin 33.50% 32.80%(Sales-COGS/Net Sales)

Net Operating Margin 10.70% (Net Profit After taxes/Net Sales)

Profit Margin on Sales 32.8 1-(COGS/Sales)

Return on Total Assets 12.00% 13.00%(Net Profit After Taxes/Total Assets)

Return on Equity 21.00% 20.00%(Net Profit After taxes/Shareholder’s equity)

VI. STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGYJEFF AUSTIN

A. Strategic Alternatives

Nardelli’s Three Es

• Enhancing the Core• Extending the Business• Extending the Market

Research and Development

• Sell new products• Levering technology• Use of recyclable material

Information Technology Strategy (LINUX)

• Line sale tracking• Trend data analysis

VI. STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGYBENJAMIN HOWARD

B. Recommended Strategy

• Convert Existing Stores: • Upgrade Existing Employee Skills• Upgrade Employee Motivation• Establish and Maintain a Reputation Comparable to their current goals for Quality and Value• Compete for Financial Resources• Increase Home Depots in Developing Markets• Implement State of the Art Technology

VII. IMPLEMENTATIONJAYSON BRAYALL

A. Alignment and Enhancement of its core business

1. Initiated superior information and computerized technologies

2. Top level management is in charge however• Subordinates must be considered• “Orange Blooded” experience should be maintained• Must develop an integrated management plan• Local managers should be trained, empowered and

incentivized to execute the master plan in a manner which best serves their customer base.

B. Programs are financially feasible

C. New SOPs must be developed

TOWS MATRIXJEFF TAYLOR

Internal Factors

External Factors

Strengths:

No single supplier Strong growth Concern for Environment Serves 3 primary customers Brand Awareness

Weaknesses:

Carpet installation Don’t inspire customer service Product recalls Employee/Management

relationship

Opportunities:

Become largest distributor Become #1 in services International expansion Potential for growth New operational initiatives

Continue to add more suppliers and products

Use fast growth rate to internationally expand

Extend excellent service to all 3 customer types

Carry more brands than the competition

Start doing carpet installation Push the initiative to treat

customers better Be picky about what products you

carry by offering only good quality Grow not only in size but in

manager/employee relationships

Threats:

Reorganization initiatives Demand for power tools Growth in online purchasing

Stay organized as company expands Provide what is in demand for all 3

customer types Offer excellent service to deter customers

making online purchases elswhere

Expand option to purchase online from Home Depot

Involve floor employees in product selection for sales

Allow employees and managers to work together to best organize the operations of the stores

Home Depot Group 2

Documents

home depot stores

home depotgroup

home depot group

current performancethe

largest retailer

company records

customer service

share growth